Study on Overdraft and Instalment Credit Reference No: 514-06.01-2810HS034 Duration 8/2011 – 5/2012 - Executive Summary - In Germany, about 80 per cent of private households dispose of a bank account with an overdraft facility. On average, the authorised credit limit on a facility amounts to a multiple of three times an individual’s net monthly income, a figure that is subject to large variation. Unemployed persons, lone parents, couples with children and the self-employed use the credit offered by the overdraft facility more frequently than the average household. From the research sample of banks covered by the study, approximately 29 per cent of all personal bank accounts with an authorised credit line were overdrawn at the time of the survey. Experts from consumer organisations consider interest rates charged for overdraft credit as too expensive. In comparison with instalment credit, the high interest rates do not appear to be justified by a high default rate. According to the same experts instalment credit and callable loans are only a better alternative to the use of the overdraft facility in cases when the funds from the overdraft are used exhaustively. The study discusses the advantages and disadvantages of different legal rules, among such possible regulations are clear usury ceilings, prominent price disclosure in advertisements, the obligation to inform the consumer in instances of excessive use of overdraft credit, rules to constrain other price determinant factors, and the duty of a governmental report on overdraft credit on an annual basis. Experiences from abroad and from other jurisdictions show the effectiveness such measures can have. Depending on the level of constraint exercised, policy may face a trade-off between the extent of consumer access to overdraft credit and reasonable prices. It is possible that usury ceilings or other limitations lead to cost transfers; however, a final assessment of such effects is beyond the scope of this study. Measures aimed at reducing the cross-subsidisation of the costs of current accounts by high interest on overdrafts may be desirable from a policy point of view to establish fair pricing and to grant relief to vulnerable households. Examples of better practice from credit markets show that more favourable pricing conditions for overdrafts (i.e. at a more similar level of interest rate to those observed for a consumer loan) and a fairer treatment of consumers are possible.